The basic types of life insurance every portfolio needs

The basic types of life insurance every portfolio needs

There is a dire need to understand life insurance and all its types to make informed choices based on what you need and what might benefit you in the long run.

Life insurance is no rocket science. Being one of the most important products in any individual's finance portfolio, it provides complete protection against economic losses. According to Economic Survey, 2018, India's life insurance penetration is 2.27% compared to the global insurance penetration of 3.47%. While this is progress from previous years, we are still behind other countries.

Considering the extent to which product portfolio of the insurance sector has been widened to cater to the needs of all types of customers, there is a dire need to understand life insurance and all its types to make informed choices based on what you need and what might benefit you in the long run.

You might have opted for a term plan but does that suffice? A term insurance policy is a life insurance policy that gives you a high cover at a nominal premium paid over a pre-determined tenure. While this may seem profitable to you, a term plan doesn't provide any maturity benefits to the insured and the sum insured is given only on the death of the insured. However, iTerm Plus, a term insurance plan from Aegon Life, for example, also gives a cover for 36 critical illnesses, and has flexibility in the payment of premiums, and gives coverage until the age of 80 years.

Here are some of the other types of life insurance policies you can opt for have benefits you might not have known of before:

1. Whole Life Plan - A basic type of cash-value life insurance, this policy involves an investment component. A whole life plan offers coverage till 99 or 100 years of age. The investment component ensures accumulation of cash over the years. This cash can be withdrawn by the insured or borrowed against keeping the policy as a mortgage. The insurance component cushions the shock of death of the insured, and hence the loss of income.

2. ULIP - ULIPS are win-win plans. Under this plan, you not only get investment freedom, you also get life insurance. You can even decide the type of investment you want to use your money to make, depending upon your appetite for risk. If you are adventurous and like to live life on the edge, you can invest in an equity based fund, else you can opt for debt based fund, or even a combination of both. ULIPS allow you to build and maintain a sturdy corpus that can be used in the future in case of any eventuality. In case of death of the insured, the lumps sum amount is paid to the family; else at the end of the policy term, the entire value of the fund is given.

3. Pension Plan - Retirement is that phase of life when you want to simply relax after a long professional career, and a lot of hard work and tough choices. Your regular income also stops which might make it difficult for you to manage your expenses. However, only 4% of the total working population of India has been covered under a pension plan, and most of these are primarily government employees. There is a dire need to understand the benefits of a pension plan. Being a part of life insurance products, pension plans provide the dual benefits of pension as well as an insurance cover. This plan provides individuals with a steady income even after retirement, and in the event of death, pays the amount specified as per the policy to the insured's nominee. All you need is to invest a little money during your working years and you have a ready corpus to give you financial stability and a stress-free life after you've retired.

4. Endowment Plan - Again a mix of life insurance and investment opportunities, an endowment plan offers life cover by changing mortality costs and providing a return on the investment made by investing in the remaining amount of the premium. Covering both - death and maturity benefits - an endowment plan ensures that a reasonable corpus is maintained to deal with the unplanned expenses of life. The premium on this plan is lower but this is a safe investment to make. Is the insurer dies before the end of the policy period, the nominee gets the insured amount? If he/she goes on to live a long, healthy life exceeding the policy period, he/she gets the insured sum along with the assured bonus.

Any prudent financial planner does not prefer to keep all his eggs in one basket. It is best to diversify investment by opting for a variety of life insurance policies so that financial security is ensured. Simply getting a term plan might rob you of the opportunity of making steady and extra money as well as ensuring that you have maintained a saving account of sorts during your professional life, in addition to, of course, the life cover you are already getting. The choice is yours.